INDUSTRY

The State of Industry

Lebanese industry expanded rapidly in the late 1960s and early 1970s.
By 1974 industry accounted for an estimated 20 percent of GDP, up from
13 percent in 1968, and industrial exports amounted to 75 percent of
total exports. This growth was characterized by a proliferation of small
industries and was fueled by easy credit, a strong local currency,
abundant and cheap supplies of skilled and unskilled labor, subsidized
electric power, and trade protection at home and expanding markets
abroad, particularly in the Persian Gulf countries.

By 1974 an estimated 130,000 people were employed in industry, and
the total nominal capital of industrial establishments stood at around
US$1.1 billion. The textile industry alone employed some 50,000 people.
A further 20,000 were employed in the furniture and wood products
industry and some 15,000 in the leather products industry.

Years of strife changed all this. In 1981 the Lebanese Industrialists
Association reported a 25-percent decline in industrial capacity, and
more than 70 percent of all industrial capacity was believed to have
been idle for at least 500 days during the previous 6 years. Layoffs
were heavy, with industrial employment in 1981 about half of what it was
in 1974. The Union of Textiles Manufacturers estimated that in 1981 the
industry employed only 12,000 workers and that less than half of the
1,200 prewar factories were still in business. One of the country's
biggest factories, a knitting plant in the Beirut port duty-free zone
that had once employed 10,000 workers, was destroyed. National Cotton
Mill (Filature Nationale du Coton), the biggest weaving and spinning
factory in the Middle East, laid off all but 450 of its workers. In
Tripoli, Lebanon's largest compressed wood factory was closed in 1981,
with the loss of 600 jobs. One of its problems was that it could not
compete with the import of wooden products through the illegal ports.

Following the 1975-76 fighting, the government could no longer afford
to try to revive the economy through export subsidies. Even when capital
was available, industries were reluctant to use it to expand capacity or
modernize machinery. One commentator noted that producers tended to
concentrate on improving profits rather than productivity.

Civil strife and disorder continually hampered production, and the
financial climate was rarely conducive to investment. The comparative
calm of 1977-82 allowed considerable decentralization of Lebanese
industry; and Zahlah, Shtawrah, Sidon, and the coastal strip under the
control of the Phalange Party all enjoyed a limited economic boom. In
the far north, remote villages in the Akkar region began to prosper
because of their distance from the country's principal areas of
conflict.

The collapse of business confidence that accompanied the political
debacles of 1984 closed hopes for sustained recovery. The Central Bank's
tight fiscal attitude limited the money available for investment.
Capital investment in industry shrank rapidly in both real and nominal
terms, which reflected pessimism over the future of Lebanese industry.
For example, investment fell from US$147.4 million in 1980 to US$94
million in 1983. By 1984 investment was down to a meager US$34.9 million
and to only US$10.6 million in 1985. In addition, industrial production
fell 3.7 percent to US$250 million in 1984.

In April 1986, Central Bank governor Naim offered to allow the
statutory reserves and treasury bonds held by specialized banks to be
used as credit for industry. Although some industrial credits appeared
to be available at reduced interest rates, it was clear that economic
measures alone would not revitalize the nation's fragmented industries.